Housing Finance

Creating conditions that support and regulate a functioning mortgage market

Protecting both borrowers and mortgage lenders from undue risk

Making micro credit available for home improvements

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In many countries, a home is usually a family’s largest expense and – if owned – their most precious asset. It can consumes a significant share of a household’s budget – up to 40 percent in some places according to the GHI. A well-functioning housing finance system puts homeownership within reach of more middle-income households and finances the construction of more rental units. The impact of housing finance is even wider: homes can be used to collateral to obtain credit to improve living conditions and finance small or home-based businesses.

Primary mortgage markets require a sound financial environment, a land titling system, the enforcement of contracts including foreclosure procedures, an operating credit system, and fair and transparent underwriting guidelines. The depth of the mortgage market varies from one country to the next. GHI assessments indicate that in some countries, mortgages from financial institutions to purchase a home are rare. In Mozambique or Cote D’Ivoire, for example, formal loans for housing are not widely available.

Micro-credit for housing

In many countries, a conventional mortgage is unattainable for the poor. Micro-credit is the extension of a small, unsecured loan with a shorter term – typically under $5,000 over a few months to a few years. For housing, residents can use micro-credit to make repairs or improve their living space. The loan can be designed to have a more flexible repayment system and interest rates may be set lower than typical small business micro-finance. While micro-credit for small businesses and enterprise is a well-known concept, micro-credit for housing is a nascent industry. Few of the countries assessed by GHI have nationally regulated micro-finance institutions providing micro-credit for housing, although some countries, such as the Philippines are taking first steps.